Iron ore price can't escape metals sell-off

The iron ore price declined 1.7% to back below $120 on Friday, ending an almost 7% rally that began last week.

The benchmark import price of 62% iron ore fines at China's Tianjin port shed $2.00 to trade at $118.60 a tonne according to data supplied by The Steelindex.

While the looming end to US central bank stimulus sent precious and base metals prices plummeting yesterday, the iron ore price is primarily driven by events in China.

Yesterday, the country's closely watched purchasing managers' index (PMI) showed a decline in manufacturing activity due to decreases in both production and demand.

Most analysts predict a steady decline in the price of iron ore towards the end of this year and into 2014 on the back of a slowdown in China which consumes more than 60% of the 1.1 billion tonne a year seaborne trade.

While waning Chinese demand is behind the latest retreat, the price of the steelmaking raw material in unlikely to hold up against vast new supplies coming on stream.

Jimblebar will produce 35 million tonnes at full tilt upping BHP's Australian export capacity to 220 million tonnes.

In May Rio Tinto (LON:RIO) CEO Sam Walsh said the company's board is likely to approve a further $5 billion expansion of its Pilbara operations in the fourth quarter taking its annual capacity to 360 million tonnes from this year's target of 290 million tonnes and 237 million tonnes at the moment.

Rio Tinto's massive Simandou project in Guinea is likely facing delays however as the world's second largest miner work out a deal with the West African nation about funding.

Production was slated for mid-2015 and when Simandou comes on stream it will add a staggering 95 million tonnes to global supply. And Rio's mine covers only half the concession.

World number one iron ore miner Vale's output is expected to decline slightly this year to under last year's 320 million tonnes, but its Carajas expansion and Sera Sul project will add 30% to its capacity.

The Brazilian giant is confident it can achieve over 400 million tonnes production by 2017.

Frik is editor and writer for MINING.com. Frik has worked as a financial journalist for 15 years appearing in a number of business and consumer publications including British Airways in-flight magazine, Business Insider, Fin24.com, Driving.ca, YCharts and Business in Vancouver. Frik was a speaker at the 2014 Global Mining Summit in Las Vegas and the Mine Lifecycle Management conference in Salt Lake City.
(DISCLAIMER: Frik Els does not own shares or hold positions in any of the equities he writes about. Nothing written should be construed as a solicitation to buy or sell any securities. Seek the advice of a broker/dealer first.)